Annual Report 2008 - Ministry of Finance and Planning

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7. Development Finance 260 An Overview In the past two decades, the Small and Medium Enterprise (SME) sectors in most economies have become a significant component of economic growth. In India among the industries, 95 percent are considered SME while in France and Japan it is 80 percent and 72 percent respectively. In Sri Lanka SMEE represent 90 percent of the industrial sector and create employment to around 70 percent of the work force and contributes about 20 percent value addition. In addition, over 50 percent of the country’s GDP is produced by the SME sector. They also form the incubators for the development of lager enterprises. Having recognized the importance of this sector in achieving a balanced economic growth coupled with equitable regional distribution and increasing employment and productivity levels, the Government has adopted various policies for accelerating development of the SME sector. However, it has been identified that the growth and expansion of SMEE are constrained by problems relating to finance, products and markets which have reduced the potential contribution of the sector to the national economy. Under the above milieu, the Government shoulders a heavy responsibility in creating a conducive environment for the sustainability of both the SME and the Micro Finance sectors. In this exertion, during the year 2008, the Department of Development Finance, coming under the purview of the Ministry of Finance and Planning, made some tireless efforts to strengthen these sectors through: • Mobilizing financial resources while removing the market impediments of the small and medium industries and micro enterprises • Stimulating private sector initiatives in small and medium enterprises development • Promoting , encouraging and assisting the development of small and medium scale enterprises • Safeguarding and protecting the business interest of small and medium enterprises • Strengthening the institutional capacity for development of financial markets • Provision of subsidies to the targeted groups Micro Finance has gained global recognition as a key initiative to alleviate poverty. Many Asian countries as well as developing countries view Micro Finance, not only as a medium of alleviation of poverty, but also as a creator of economic independence and an instrument for revival of marginalized people. Micro Finance creates conditions to transform the people at the bottom of the pyramid out of poverty by empowering them to seek opportunities in the corporate world. The Sri Lankan financial market is essentially a micro finance market with more than 80 percent of households having total borrowing below Rs.100,000. Outreach of financial institution has been identified satisfactory with 82.5 percent of households having accessed financial institutes for their credit and savings requirements. Nevertheless, the sector generally suffers from weak governance, poor repayments rates, high transaction costs, recurring losses and significant deficiencies in regulation and supervision and lack of insurance products offered by the Micro Finance Institutions. Ministry of Finance and Planning Sri Lanka Annual Report 2008
7. Development Finance 261 PERFORMANCE DURING 2008 SME Development New Comprehensive Rural Credit Scheme (NCRCS) During 2008 the Government continued with the provision of interest subsidy to lending banks for loans advanced by them out of their own resources for cultivation of paddy and other subsidiary food crops, production of seeds and planting material on a commercial scale, and to buyers for purchasing agricultural produce, produced under Forward Sales Contracts. The lending banks were required to grant loans to farmers for cultivation and also to commodity buyers who enter into Forward Sales Contracts with the farmers at the same interest rate with 2 percent commission under NCRCS. The Government provided the interest subsidy at 8 percent for cultivation loans and 6 percent for purchasing loans per annum to the lending banks who lent out of their own funds under this scheme. Under the above progarmme Rs. 2,750.1 mn among 67,397 farmers and Rs. 7,784.9 mn among 1,373 paddy collectors have been distributed as cultivation and purchasing loans respectively during the year 2008. The highest contribution for both the cultivation and the purchasing loans has been achieved by the Bank of Ceylon granting Rs. 897.1 mn and Rs. 2,811.8 under both programmes utilizing their own funds. The details of above information are provided in Table 7.2, Chart 7.1 and Chart 7.2. Accordingly, the Department has released approximately Rs. 155 mn for the lending banks as interest subsidy for the year 2008 and the details are given in Table 7.1. Name of the Bank Table 7.1 Subsidy Payments of the year 2008 Amount paid (Rs mn) Bank of Ceylon 48.5 People’s Bank 21.1 Commercial Bank 7.7 Hatton National Bank 29.5 Sampath Bank 2.9 Seylan Bank 11.9 Kadurata Development Bank 4.9 Rajarata Development Bank 17.8 Ruhuna Development Bank 6.8 Uva Development Bank 3.4 Wayamba Development Bank 0.3 Total 154.8 Source: Department of Development Finance Ministry of Finance and Planning Sri Lanka Annual Report 2008
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2008 Annual Report Ministry of Fina
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2 This Report is Published in terms
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4 Heads of Treasury Departments (as
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6 Heads of Statutory Boards / State
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8 Contents Chapter 1 - Macro Econom
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16 Sri Lanka at a Glance - 2008 KEY
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18 Sri Lanka at a Glance - 2008 Con
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1. Macro Economic Perspectives 20 E
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2. Fiscal Developments - 2008 46 An
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2. Fiscal Developments - 2008 48 Ta
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138 Ministry of Finance and Plannin
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3. Performance of Public Enterprise
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4. Reform Initiatives 174 An Overvi
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4. Reform Initiatives 176 also prov
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4. Reform Initiatives 178 Finance/R
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4. Reform Initiatives 180 Environme
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4. Reform Initiatives 182 Pradeshiy
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4. Reform Initiatives 184 SALIENT F
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4. Reform Initiatives 186 The Credi
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4. Reform Initiatives 188 Name of t
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4. Reform Initiatives 190 Project P
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4. Reform Initiatives 192 TERMS OF
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4. Reform Initiatives 194 Table 4.8
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4. Reform Initiatives 196 grounds,
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5. Foreign Financing of the Budget
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328 8. Financial Statements - 2008
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